Hang on a minute – in a three-horse race, they can’t all win?

In the last three months, I’ve heard three dental corporates suggest that they are targeting over 200 new members in the next 10 years.

We shall see in the next few months whether the land grab pushes those values higher (given what BUPA paid for Oasis) – it would be a brave soul who suggested values were as high as they can ever be.

(Incidentally, contrast that with my micro-corporate NHS clients, who are pulling out of acquisitions at the moment, preferring to wait for the after-effects of the demise of large-scale corporate NHS dentistry. They are waiting for the bargains to appear when the House of Cards collapses).

So the sweet spot in goodwill values at the moment is private dentistry, anything from about £500,000 turnover upwards (the more the merrier) and the owner(s) sticking around for 5 years.

Whether it’s the Big Bang purchase by a private individual (increasingly rare), the earn out offered by BUPA and Portman, or the shared ownership model promoted by Dentex, these three are engaged in an acquisitions race.

Goodwill valuations seem to be 6 times EBITDA, plus or minus 10%, with more money up front meaning less later and vice versa. I wonder if BUPA will be the first to break from the pack and offer a higher multiple?

My role as an unwitting acquisitions incubator continues unabated and I’m becoming more convinced that some acquisitions managers are following me around on Facebook, noting where I check in and sending out that “you have been chosen” letter to the owner.

You might ask “why check in then?” but there is a paradoxical pleasure in hearing that corporates target my clients because they know they will be well run – I may not end up a financially wealthy man but it brings a smile to my face to know they are looking and I’m rich in much nicer ways.

Dare I say it – if you are building a practice with a view to a corporate sale, you could do yourself a favour by hiring me!

I have no doubt that 2018 will be another year in which those client emails arrive saying “goodbye and thanks for all the fish” – I’m cool with that.

There are some issues, however, with which I am struggling.

Issue #1

I don’t think there are 600+ quality private practices that are going to come up for sale in the next 10 years so it seems that one or more of the corporates is not going to hit their target. I wonder what effect that will have on them and on the market overall?

Issue #2

How are they intending to get the work done?

A £200m dental corporate needs some running.

That extends to the patient-facing aspects of the business – the dentistry, the therapy, the hygiene, the nursing, the treatment co-ordination.

It also embraces that administrative and compliance function.

It includes the day to day paperwork of GTD (getting things done).

Imagine, if you will, the HR function in a business of that size.

Ponder on the recruitment:

  • where are all those dentists going to come from? Especially in an environment in which old dentists are retiring early, middle-aged dentists are going back to Europe and young dentists are leaving the profession?
  • how are all those team members going to be recruited, trained and maintained?
  • given that all three corporates want organic growth as well as acquisitions, where are all those extra patients coming from, especially when their marketing systems are, to be kind, behind the times?

Issue #3

If the lion’s share of private dentistry is owned by a small number of corporates, what effect does that have on the supply side of dentistry; on the labs, the equipment manufacturers, the materials suppliers?

What happens to the trade associations and the conferences?

Multiply all of the above questions by three.

One of our corporates is, of course, a major company with (no doubt) deep pockets and a very long time horizon.

The other two have more limited resources and will be dependant on the ability to raise institutional finance when required.

There are some very bright people behind all of this and it’s to be hoped that they are giving the issues I raise some careful consideration – and not just “going for growth” in the hope that they can cash in and scarper before the bubble bursts.

What worries me most is the private equity (PE) people arriving in the mix.

I have had some interesting dinners in Marylebone over the last few years, with PE people telling me that they have chosen healthcare generally and specifically dentistry as a target sector because of the predicted growth.

One even went as far as to say “we aren’t like the others – we have a longer term investment horizon of 7 years and not 4 years.”

Really?

I love to ask the private equity guys how they feel the “fitness to practice” witch-hunt by the GDC in recent years has affected the confidence of clinicians. How they think that digital dentistry will change the profession. What effect the repatriation of European associates will have?

The blank looks are a picture.

There is hardly a week goes by that I’m not in conversation with an existing client or an external enquirer asking “I’ve been offered £X – do you think it’s time to sell?”

The mathematical answer is “how much is enough for you?”

The emotional answer is “when is the right time for you?”

Unfortunately, that isn’t what’s happening.

Most of the time I hear “what if I miss the chance?”

The corporates are playing that “don’t miss the boat” card very well. They know that most owners are lonely, worried and tired.

I do sometimes wish that those considering a sale would ask the buyer a few simple questions:

  1. “What is your time horizon as owners? When do you intend to flip, flog or float?”
  2. “How do you intend to hit the 200+ you keep telling me about?”
  3. “How do you intend to get the work done? Who are you going to recruit and from where?”
  4. “What do your marketing plans look like?”
  5. “Where are the dentists going to come from?”

I’ve discovered that asking corporates to answer these questions is like asking your SEO supplier how they intend to get you to page 1 Google. They talk for 10 minutes and you realise that either you haven’t understood a word said, or they haven’t actually said anything.

All rather fascinating innit?

I conclude with a reality check and an observation.

Reality Check

Who the hell am I? Just a freelance consultant, working his way around the UK, Ireland and the world, listening to owners 5 days a week.

I tried my hand at corporate dentistry 5 years ago with a micro-managing, megalomaniac dental entrepreneur and it failed.

I’m never going to sell out for millions.

What could I possibly know?

An observation

I had breakfast with Colin Campbell a couple of weeks ago, just before the end of his latest sabbatical.

Asking him about plans for The Campbell Clinic and The Campbell Academy, he replied “I want to build a 100-year company.”

What a refreshing bloody change.

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Chris Barrow

Chris Barrow has been active as a consultant, trainer and coach to the UK dental profession for over 20 years. As a writer, his blog enjoys a strong following and he is a regular contributor to the dental press. Naturally direct, assertive and determined, he has the ability to reach conclusions quickly, as well as the sharp reflexes and lightness of touch to innovate, change tack and push boundaries. In 2014 he appeared as a “castaway” in the first season of the popular reality TV show “The Island with Bear Grylls”. His main professional focus is as Coach Barrow, providing coaching and mentorship to independent dentistry.